Article excerpt

WASHINGTON - Whoever wins the White House next year will have to
deal with an issue of almost- impenetrable complexity and
contentiousness: How to tax multinational companies? On the one
hand, large global firms - which have never been shy about
minimizing their taxes through deft accounting maneuvers - are
becoming more aggressive. On the other, so are governments,
increasingly desperate to raise tax revenues to pay for aging
societies and cover persistent budget deficits.

The latest evidence of the unavoidable collision is the proposed
merger between the American drug giant Pfizer and the smaller Irish
pharmaceutical company Allergan a combination that, if realized,
would create a firm valued at roughly $160 billion and would legally
convert Pfizer into an Irish corporation.

The deal is driven in part by tax savings. Irelands basic tax
rate on corporate income is 12.5 percent compared with a maximum
U.S. rate of 35 percent.

The proposed merger attests to a sea change in American corporate
attitudes and behavior. A decade ago, it was inconceivable that a
huge bluechip American company would jettison its U.S. legal
identity. Smaller firms with lower public profiles might do so
though even that was frowned upon but it simply wasnt done by
bigger, better-known companies. Pfizer is a long-standing member of
Americas corporate elite. Its aggressiveness shows how the taboo has
eroded.

Some math helps explain the shift. By 2014, Pfizer had
accumulated $74 billion in uncommitted foreign profits that had not
been repatriated to the United States, estimates Americans for Tax
Fairness, a left-leaning advocacy group.

If Pfizer moved the money to the United States, it might
potentially be taxed at todays rate of 35 percent. The bill would be
about $26 billion. But the same profits taxed in Ireland might cost
only about $9 billion. The $17 billion difference, the company says,
could support more drug research, including in the United States
where it is now concentrated, or payments to shareholders.

To many, this cold profit- maximization seems unpatriotic and
predatory. The move to Ireland would occur mostly on paper. Pfizer
says that its global operational headquarters would remain in New
York while its principal executive offices would be in Ireland
whatever that means. The tax switch is called an inversion. Heres
how Americans for Tax Fairness characterizes Pfizers Irish
inversion: With an inversion, Pfizer essentially would continue to
enjoy all the benefits of being an American corporation but just not
pay the taxes required for that privilege. …